The Housing Bubble

“plenty of people with seemingly good credit are also caught in the subprime trap.”

“Never underestimate the power of incentives.” - Charlie Munger

The incentive for a loan broker who makes his money on the backside of a loan is to stick the mark with the highest rate possible so he can resell the loan to somebody else for a maximum amount of profit. He essentially buys at wholesale prices and resells at retail prices.

If he were to try this with products that most everyone know the value of then he would probably starve. But very people know the value of the product he deals with - which are loans - so that gives him an edge. And with this edge he gets to make a lot of money doing very little work.

Thousands of loan brokers were circulating about a few years ago and everywhere they went they were making their pitchs. Thousands of loan brokers making pitches resulted in tens of thousands of marks falling for these pitches.

And so here we are.

Good luck trying to find an academic study which raises the issue I mentioned yesterday (and I thought you were suggesting as well), which is that the same household could have either qualified for a prime mortgage and lived in a smaller, less desirable home, or qualified for a subprime mortgage at a much higher home price to income ratio and lived high on the hog right up until foreclosure.

Between 2000 and 2007 I bought 2 houses. My fico was in the mid to high 700s. However I got an arm both times knowing full well I wouldn’t be in the house for more than the length of the fixed portion of the loan.

buy low sell high. Not everyone has lost money.

H.A. I still think 1997 price levels are the real value. Makes sense and we will return to them. Thugernment has only been postponing it.

When we bought our 4,000 sq ft view McMansion In 1998 (So Ca), it was priced for the income stats at $400K. There was no bubble back then. Our home appreciate 3% a year, until the bubble got momentum and it skyrocketed. We sold after it peaked. I don’t know you are pre- 2002 on your schick? (HA)
We lived it. We walked away with a sizable profit, which allowed us to pay cash for this joint. We also had other savings.

You’re right post 2002, but not before. Although, some moments in time were a good time to jump in. Too many variables going on.
You have to pay to live somewhere, Case by case.

If you bought a house with a 15 year loan in 1998 it would be paid off this year.

the govt wont let prices deflate and wipe out property tax revenue.

get over and go buy your debt shack.

snowgirl
Thanks for the link. I don’t personally understand the RV thing. A lodge and a day hike suits me just fine. A second home is laughable. When I frolic, I don’t want to clean.

Does it matter whether the RV purchase was funded out of mortgage loan principle?

This guy sounds like you..

He does stress the essential point. Any and all house sales numbers are meaningless/manipulated, as long as the banks and investors sit on “shadow inventory”.

PERSONAL FINANCE
June 22, 2013, 8:26 p.m. ET
The Fed Signals a Slowdown; Traders Head for the Exits
By TOM LAURICELLA

The sharp selloff in the bond market is a wake-up call for investors. But in some cases, it’s also an opportunity.

Many bond market funds are now showing losses for the year: Yields have jumped sharply, and prices correspondingly have fallen, because the Federal Reserve seems increasingly likely to scale back its efforts to stimulate the economy.

But more broadly, sharp selloffs in higher-yielding investments have revealed where investors may have overpaid for those income streams. That was especially the case in high-dividend stocks, such as utilities, which many investors tend to view as havens. Also taking a big hit: yield-rich real-estate investment trusts.

This abrupt shift in recent weeks highlights the importance of having at least part of a portfolio positioned for rates making a sustained rise. That could include owning go-anywhere bond funds whose fate isn’t linked to rates staying low.

But at the same time, investors may have, in some cases, thrown out the baby with the bathwater. Some pros say corners of the market which took a hit are now attractive—such as high-yield bonds and energy-focused master limited partnerships.

The bond market selloff has been swift. Yields on the U.S. Treasury 10-year note, which move in the opposite direction of prices, have jumped from 1.6% in mid-May to 2.5%—their highest level in 15 months.

By historical standards, yields are still quite low, but the market move has been painful: Forexample, the $15 billion iShares Core Total U.S. Bond Market, which tracks the widely followed Barclays U.S. Aggregate Bond Index, is down 2.5% for the year, wiping out the 2.2% annual yield the fund offers, according to Morningstar.

Driving these moves has been a rethinking of the future course of Fed policy. With the U.S. economy showing moderate growth, Fed officials have suggested that they could pare back their $85 billion-a-month bond-buying program later this year.

Fed Chairman Ben Bernanke last week compared the potential scaling back of its easing to lifting a foot off the gas pedal of a car.

Yet it was more than enough to spook the bond and stock markets.

The Dow Jones Industrial Average dropped 200 points in the immediate wake of Mr. Bernanke’s comments on Wednesday, shed another 350 points in Thursday’s rout but clawed back 40 points on Friday.

The Dow closed down 1.8% for the week. It is down 3.96% from its all-time high mark, set barely a month ago.

This sudden shift in the landscape offers several lessons to investors who have flocked both to bond funds and to other investments that closely track bond yields.

There’s a tendency among investors to think they can get out of their bond investments before the tide changes. But, says James Swanson, chief investment strategist at MFS Investment Management, “interest rates are notoriously hard to predict.”

Shawn Rubin, a financial adviser at Morgan Stanley, notes that because of the math of how bonds are priced, at low yield levels, “it doesn’t take a lot of interest-rate moves to wipe out returns.”
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Jittery markets spurn Bernanke’s interest-rate gift
By Dan McSwain
5 p.m. June 22, 2013

A television screen on the floor of the New York Stock Exchange shows the news conference of Federal Reserve Chairman Ben Bernanke, Wednesday, March 20, 2013. In a statement after a two-day meeting, the Fed stood by its plan to keep short-term rates at record lows at least until unemployment falls to 6.5 percent, as long as the inflation outlook remains mild. (AP Photo/Richard Drew) A television screen on the floor of the New York Stock Exchange shows the news conference of Federal Reserve Chairman Ben Bernanke, Wednesday, March 20, 2013. In a statement after a two-day meeting, the Fed stood by its plan to keep short-term rates at record lows at least until unemployment falls to 6.5 percent, as long as the inflation outlook remains mild. (AP Photo/Richard Drew) — AP

Given the trauma of the Great Recession, it’s hard to blame investors who just don’t trust the stock market and its four-year streak of rising values. But the market’s tantrum directed at Ben Bernanke last week was overdone.

The S&P 500 fell nearly 4 percent in the 26 hours after the Federal Reserve chairman outlined the central bank’s timetable for merely beginning to taper off the massive monetary stimulus it began during the global financial panic way back in 2008.

Clearly, there will be some discomfort when the Fed eventually checks the U.S. economy into easy-money rehab. But Gentle Ben isn’t cutting anybody off cold turkey.
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How did stock investors respond to Bernanke’s improved outlook for them? With a sell-off, although traders said that most of the selling came from hedge funds, automated trading systems and other fast-money speculators.

At times like these, I remind myself that markets are simply large herds of humans. Over the long term, they can be incredibly prescient and wise. But to the maelstrom of daily events, they more often react irrationally, in rough proportion to the fears, hopes, expectations and misinformation of the herd.

Conventional wisdom holds that markets peer far into the future. Indeed, just the firming prospect of a Fed rate hike has been accompanied by a market-driven increase: The 10-year Treasury traded at yields of 2.54 percent Friday, up from 1.66 percent May 1.

Because rising interest rates can dampen borrowing, and thus spending, then someday the economic growth that justifies today’s lofty stock valuations might slow.

In this school of thought, last week’s volatility was a rational response to the heightened risk of eventual slowdown after the Fed raises rates. But wouldn’t that far-off slowdown trigger the next round of Fed stimulus? Welcome to the funhouse mirror of trying to outguess the Fed, the economy or the markets.
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I think this week was like a 6.0 earthquake. Some damage, things fell off the shelf, maybe two people died. But overpasses are still intact even with new cracks and more weakness.

Things will return to upward stock prices for awhile. Starting? Don’t know. The next two or three weeks could be downers.

Regardless, in my case I have between 1,000 and 1,500 shares of my company stock I want to sell. I sell the batches that produce the smallest tax. My brokerage has an excellent ESPP sales calculator. I like selling the batches that have the highest cost basis. Unfortunately gotta wait to October 1 for that.

Hope to raise $30,000 cash to continue my stacking (gold).

Will the China credit crunch spill over into international financial markets, or does decoupling remain intact?

How big would the bond losses be if Fed balance sheet losses were included in the figure?

Business News
Bond Losses of $1 Trillion if Yields Spike, BIS Says
Published: Sunday, 23 Jun 2013 | 10:54 AM ET

Bondholders in the United States alone would lose more than $1 trillion if yields leap, showing how urgent it is for governments to put their finances in order, the Bank for International Settlements said on Sunday.

The Basel-based BIS lambasted firms and households as well as the public sector for not making good use of the time bought by ultra-loose monetary policy, which it said had ended up creating new financial strains and delaying rather than encouraging necessary economic adjustments.

The BIS, a grouping of central banks, was one of the few organizations to foresee the global financial crisis that erupted in 2008.

Since then, government bond yields have sunk as investors seek a traditionally safe place to park funds, regulators tell banks to hold more bonds and central banks buy bonds as a means of pumping money into vulnerable economies.

The BIS said in its annual report that a rise in bond yields of 3 percentage points across the maturity spectrum would inflict losses on U.S. bond investors - excluding the Federal Reserve - of more than $1 trillion, or 8 percent of U.S. gross domestic product.

The potential loss of value in government debt as a share of GDP is at a record high for most advanced economies, ranging from about 15 percent to 35 percent in France, Italy, Japan and Britain.

“As foreign and domestic banks would be among those experiencing the losses, interest rate increases pose risks to the stability of the financial system if not executed with great care,” the BIS said.

“Clear central bank communication well in advance of any moves to tighten will be critical in this regard.”
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Read More: Firms Love Debt as Bond Bear Lurks

Is it still “turtles all the way down” at this point?

June 23, 2013, 9:15 a.m. EDT
After Fed signal, stock market turns focus to data
Some home builders due to report earnings in coming days
By Victor Reklaitis, MarketWatch

NEW YORK (MarketWatch) — In the children’s story about Goldilocks, the little girl with that name eventually runs away.

Given the Federal Reserve’s signal that it may scale back monetary stimulus later this year, perhaps the stock market’s demand for so-called “Goldilocks” economic reports also will go away.

That term has referred to data that aren’t too hot, but also aren’t too cold, just like the porridge that’s eaten up in the fairy tale. MarketWatch has used the term from time to time this year.

A bad economic report is obviously bad, but some strategists have warned that excessively positive reports would mean the Fed would start to wind down its stimulus measures.

Well, the Fed has now signaled clearly that it’s ready to do exactly that if the economic recovery remains on track as the central bank expects it to.

This week’s economic reports — which include durable goods, consumer confidence and new-home sales — will probably point to steady if lackluster growth. Read a preview of the week’s economic reports.

Bruce Bittles, chief market strategist for Robert W. Baird & Co., isn’t convinced the Fed actually will be able to cut back as soon as it expects on its $85 billion–per–month bond-purchase program.

“Our feeling is that the Fed is not going to take their foot off the pedal, because the economy is not going to be able to reach escape velocity,” he told MarketWatch on Friday.

In addition, he said he thinks the Goldilocks concept was an illusion anyway, and that good news is always good news.

The coming week could provide more details about what the Fed was thinking with its latest policy decision. Fed officials have a bevy of speeches scheduled.

Dallas Fed President Richard Fisher, not a voting member of the Fed’s rate-policy committee, will speak on Monday. He’ll be followed by three Fed officials delivering speeches on Thursday, then four speaking on Friday.

The central bankers also could share what they think of the market reaction to their decision. The Dow Jones Industrial Average endured its worst two-day loss since 2011 after the Fed news, resulting in a weekly loss of 1.8%.

The S&P 500 shed 2.1% for the week, while the Nasdaq Composite dropped 1.9%. For all three stocks indexes, it was the fourth down week in five weeks. Discouraging news from China teamed up with the Fed news to wallop stocks, gold and other assets, while the 10-year Treasury yield jumped to 2.53%.

Home builder stocks and exchange-traded funds suffered especially big losses. They could recover this week, however, if a couple of earnings reports from that sector surpass expectations.
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June 23, 2013, 5:33 a.m. EDT
Economy won’t shift into higher gear soon
Latest evidence likely to point to steady if lackluster growth
By Jeffry Bartash, MarketWatch
Home prices and sales of new homes are expected to show mild gains in reports to be released in the coming week.

WASHINGTON (MarketWatch) — Ben Bernanke’s Federal Reserve thinks the economy is going to shift into a higher gear over the next year, but don’t expect to find any evidence of burned rubber this week.

The latest batch of reports is likely to show the U.S. on cruise control in the right lane.

Mild gains are expected in housing and manufacturing and consumer spending in May probably advanced after reversing in April, according to the MarketWatch forecast.

The upshot: The economy is moving along at about a 2% pace, but it needs to zoom a lot faster to justify the Fed’s newfound optimism. The central bank sees U.S. growth accelerating from 2.3% to 2.6% in 2013 to 3.0% to 3.5% in 2014, marking the best spurt in nine years.

Economists say it will take several months to find out whether the Fed’s more-upbeat outlook is justified and they’ll look mainly at hiring for clues.

“If you don’t get more job creation and higher incomes, you are not going to see a big increase in consumer spending or economic growth,” said Joshua Shapiro, chief economist at MFR Inc.
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The same logic applies to gold versus bonds, except even moreso, as gold pays a dividend / coupon of 0%.

Stocks Have Lost A Major Advantage They Had Over Bonds
Sam Ro, provided by
Published 7:39 am, Sunday, June 23, 2013

For several months, at least some investors seeking income have fled the bond market and headed toward the stock market because stock dividend yields were higher than than bond coupon payments.

This was a considered a tailwind for the stock market.

However, with this week’s — and this month’s — sell-off in the bond market, prices have come down so much that bond yields are now higher than stock dividends.

Here’s BMO Capital’s Brian Belski:

One of the biggest advantages stocks have enjoyed lately has been relatively high dividend yields when compared with bonds. Based on our work, this has provided a significant boost to stock market performance. For instance, ever since the S&P 500 dividend yield consistently exceeded the 10-year Treasury yield (in this cycle), stocks have gained an average annual return of 24.1%. This compares with 18.2% for periods where the dividend yield was below the Treasury yield and 5.5% if you exclude the “rebound” year of 2009. Needless to say, the yield advantage has clearly provided a strong tailwind for market performance, and in our view, made the “re-allocation” decision for skittish investors a little easier. Unfortunately, recent higher rates have pushed the S&P 500 dividend yield back below the 10-year Treasury yield for the first time in almost a year and a half — a trend that is likely to continue given Fed posturing.

This is not to say stocks aren’t attractive on an absolute basis. However, the relative value offered by stocks over bonds has narrowed significantly.
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What To Do If Bonds Slump
Prepare for the inflation and rate hikes.
By Walid Petiri | Posted: 06-21-13 | 11:42 AM

The death of the 30-year bond bull market, often predicted, may finally be here. How do you prepare for that? Since bailing out of bonds altogether is unwise – they are good ballast for any portfolio – you can buy floating-rate notes, focus on short-term bonds or structure your bond holdings using a technique called a ladder.

For at least the last three years, we’ve heard about the coming end of the grand bond rally. Nothing can last forever. The bond bull market started in the early 1980s, after the Federal Reserve’s then-chairman, Paul Volcker, broke the back of inflation. The 1970s inflation was poison to bonds. As an antidote to the 2008 catastrophe, the Fed’s bond-buying stimulus program and its reduction of short-term interest rates to near zero percent kept the party going.

But for a while, legendary investors Jim Rogers and Bill Gross have each repeatedly called an end to the bond bull run. Now we can add a new prominent name to the list. Federal Reserve Bank of Dallas President Richard Fisher matter-of-factly stated June 5 after a speech in Toronto: “This is the end of a 30-year rally” and “At some point secular markets change.”

His downbeat comments come on the heels of May’s bond bust, one of the worst months for the 10-year Treasury since 1950. Thus far June isn’t good either. The 10-year started 2013 yielding a little over 1.8% and today is 2.4%. For bonds, that is a big increase. Bond prices, which move in the opposite direction from yields, tumbled.

Mutual fund flows may be anticipating bad times ahead for bonds. From the collapse of Lehman Brothers in September 2008 through 2012, investors poured $900 billion into bond funds – and yanked $410 billion from equity funds. So far this month, ending June 12, bond flows reversed course as investors removed $24.3 billion from bond funds; although it’s not a lot this, this could be a harbinger. How many current bondholders will keep their 10-year or even 30-year Treasuries until maturity, if rates are rising again?

While the stock market has had some shaky days of late, amid talk that the Fed stimulus may taper off, the Standard and Poor’s 500 is still up a heady 15% this year. It seems that almost all central bankers want you to buy stocks – from Japan to Europe they have historic level rates and are talking about potentially lower rates. If the stock bull market continues, why would people put their money into an investment returning slightly more than 2% annually for 10 years?
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ft dot com
June 23, 2013 7:18 pm
Quantitative easing: End of the line
By Robin Wigglesworth and Stefan Wagstyl
With the Fed eyeing an exit from loose monetary policy, emerging markets are coming under pressure

International investors have long shunned Honduras, an impoverished Central American country plagued by violence and coups. That changed this year.

Although Honduras struggles to pay its bills and suffers one of the world’s highest murder rates, it made a bond market debut in March, with investors happy to lend $500m for the next decade. Without the bond, the country could well have defaulted on domestic debts. In large part, Honduras can thank the US Federal Reserve for its unlikely salvation.

The Fed has been at the forefront of central banks seeking to stimulate economic recoveries through creating trillions of dollars to buy bonds and wrestle down global interest rates. Much of the new money has spilled into the developing world as investors have desperately sought better returns in new markets. This helped countries from Honduras to Rwanda gain access to international capital for the first time, and buoyed the bigger developing markets.

But Ben Bernanke, the Fed chairman, has reminded investors and borrowers of an inconvenient truth: the party cannot last forever. On May 22 Mr Bernanke told the US Congress that the Fed’s $85bn-a-month bond purchases could soon be reduced – a message he reiterated last week. His words have echoed across global financial markets but nowhere as loudly as in emerging economies.

The subsequent sell-off in currencies, stocks and bonds has been sharp, deep and indiscriminate. Investor favourites such as Mexico have suffered almost as much as less favoured countries. “We’ve been absolutely spanked,” says one hedge fund manager. Central banks have been forced to intervene to stem currency declines and officials have scrambled to reassure investors but to little avail. The currencies of Turkey and India slid to record lows last week, and emerging stock markets have fallen almost 15 per cent in a month.
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ft dot com
June 23, 2013 6:14 pm
US Treasuries to feel more heat
By Michael Mackenzie in New York

The reeling US Treasury market faces further challenges this week that could push benchmark yields higher, placing equities and the housing sector under renewed pressure as investors prepare for the end of a bruising second quarter.

Trading across markets typically dries up as investors and banks prepare for the end of the quarter, potentially exacerbating downward moves in share prices and the sharp upward move in yields, which began when Federal Reserve chairman Ben Bernanke indicated last Wednesday that the central bank was looking to ease some of its hefty stimulus.

Holders of US government bonds are already on course for their worst quarterly performance since late 2010, with the Barclays Treasury index sporting a loss of 2.179 per cent since the start of April.

David Ader, strategist at CRT Capital, said that a busy week of economic data, speeches from Fed officials and debt auctions “presents an awful lot of opportunities for the market to be volatile”. Ahead of the quarter ending, he added: “We would expect liquidity to be relatively thin given the balance sheet constraints and directive of management to go easy at this juncture.”

Dealers will underwrite $99bn of new Treasury debt spread across the two, five and seven-year sectors in what shapes as a test of investor appetite for government paper.

As the benchmark for US capital markets, the 10-year Treasury yield, which moves inversely to bond prices, has been at the forefront of the sell-off with yields surging more than 40 basis points above 2.50 per cent last week. That was a 22-month peak and its fastest climb in such a small period of time in more than a decade.
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ft dot com
June 21, 2013 5:51 pm
Unwinding the world’s biggest economic experiment
By Gavyn Davies
When the Fed does change direction, tightening often comes in a rapid series of interest rate rises

The Marriner S. Eccles Federal Reserve building stands in Washington, DC, US©Bloomberg

Flight path unknown: The return of market turbulence is a taste of what could come if the Feb halts stimulus moves

On Wednesday, the chairman of the Federal Reserve announced that the greatest experiment in the history of central banking might be nearing its end. Ben Bernanke’s announcement included many caveats, but the financial markets did not miss the message. Since 2009, the central bank has been buying financial assets – US Treasury bonds and some types of corporate debt – paid for by an expansion of the monetary base (so-called “printing money”). This kept interest rates low, which damaged savers but helped indebted businesses and households. It has also been the major prop for financial markets. Within about a year, if the Fed’s plans come to fruition, the US government deficit will need to be financed from private sector savings – not by the central bank. Asset markets will be left to fend for themselves as the biggest buyer withdraws from the arena.

That is why some hedge funds sold off bonds this week, causing a big drop in their prices – the flipside of which is a rise in borrowing costs (or “yields”). Mr Bernanke has expressed consternation that adjustments to the path for the Fed’s balance sheet, such as the one he announced this week, can have such a profound effect on the bond market. But investors are making logical inferences from central bank behaviour. The Fed does not change direction often. When it does, tightening often comes in a rapid series of interest rate rises that are not fully anticipated by investors.

Furthermore, when the Fed was supporting markets, investors had to seek out new sources of income to replace declining interest receipts on their government bond holdings. In this so-called “reach for yield”, some of them leveraged themselves up to buy into emerging markets and bond funds – positions they are now dropping sharply. It is impossible to be sure where deleveraging will end.

The last big unwind – a much smaller one – started almost exactly a decade ago. On June 25, 2003 the Federal Open Market Committee met amid expectations of a cut in the interest rate from 1.25 per cent to 0.75 per cent. Vincent Reinhart, the committee secretary, opened the meeting with some gallows humour. “On Friday”, he said “I was in line with my 11-year-old son to purchase Harry Potter and the Order of the Phoenix . . . It is somewhat longer than the briefing papers the committee has received. But it, too, considers an alternative world filled with uncertainty and great perils”.

Alan Greenspan was chief wizard at the Fed that day. Mr Bernanke, more radical than he is now, was there, but mostly stayed silent. The committee was fully aware of the dangers ahead when it decided to cut the federal funds rate by only 0.25 percentage points. The market concluded that the Fed was preparing to tighten policy sooner than expected, and sharply adjusted expectations for where it thought rates would be in the years ahead. The same thing happened this week.

The previous big Fed exit, announced on February 4, 1994, was even more dramatic. It was a day that triggered such turbulence that it is etched in the memory of all bond traders. Working as a Goldman Sachs economist, I was on the bond trading floor when the Fed released an innocuous-sounding statement. The FOMC had decided “to increase slightly the degree of pressure on reserve positions . . . which is expected to be associated with a small increase in short-term money- market interest rates”. Pardon? After a few moments, there was an explosion of noise as realisation set in.

The market was unprepared for the Fed change, Investors were over-leveraged and knee-deep in Mexican debt and mortgages. Equities emerged relatively unscathed. But before the bloodbath ended that November, the survival of the US investment banks was at stake.
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“Next, these central banks began expanding their balance sheets, which are now collectively at roughly three times their pre-crisis level – and rising.”

- No limit?!

BIS Says Party Over for Quantitative Easing
Submitted by Robert Oak on June 23, 2013 - 5:46pm

The Bank for International Settlements has demanded Central Banks stop their quantitative easing in hopes of a global economic recovery. All that has happened is a stock market love affair while the real economy languishes. BIS has issued their annual report demanding nations deleverage, which is codespeak for austerity. The Bank fo International Settlements is the bank of the central banks, so these ultimatums to their 58 Central Bank members are significant. The BIS demand is clear, quit quantitative easing, adding to balance sheets and issuing zero interest rates and get back to layoffs, downsizing and austerity. Those are the BIS marching orders to their members as their annual report implies Central Banks are simply staving off the inevitable with unforeseen financial consequences.

Six years ago, in mid-2007, cracks started to appear in the financial system. Little more than a year later, Lehman Brothers failed, bringing advanced economies to the verge of collapse. Throughout the ensuing half-decade of recession and slow recovery, central banks in these economies have been forced to look for ways to increase their degree of accommodation. First they lowered the policy rate to essentially zero, where it has been ever since in the United States, United Kingdom and euro area. (And where it has stood in Japan since the mid-1990s!) Next, these central banks began expanding their balance sheets, which are now collectively at roughly three times their pre-crisis level – and rising.

Originally forged as a description of central bank actions to prevent financial collapse, the phrase “whatever it takes” has become a rallying cry for central banks to continue their extraordinary actions. But we are past the height of the crisis, and the goal of policy has changed – to return still-sluggish economies to strong and sustainable growth. Can central banks now really do “whatever it takes” to achieve that goal? As each day goes by, it seems less and less likely. Central banks cannot repair the balance sheets of households and financial institutions. Central banks cannot ensure the sustainability of fiscal finances. And, most of all, central banks cannot enact the structural economic and financial reforms needed to return economies to the real growth paths authorities and their publics both want and expect.

What central bank accommodation has done during the recovery is to borrow time – time for balance sheet repair, time for fiscal consolidation, and time for reforms to restore productivity growth. But the time has not been well used, as continued low interest rates and unconventional policies have made it easy for the private sector to postpone deleveraging, easy for the government to finance deficits, and easy for the authorities to delay needed reforms in the real economy and in the financial system. After all, cheap money makes it easier to borrow than to save, easier to spend than to tax, easier to remain the same than to change.

Yes, in some countries the household sector has made headway with the gruelling task of deleveraging. Some financial institutions are better capitalised. Some fiscal authorities have begun painful but essential consolidation. And yes, much of the difficult work of financial reform has been completed. But overall, progress has been slow, halting and uneven across countries. Households and firms continue to hope that if they wait, asset values and revenues will rise and their balance sheets improve. Governments hope that if they wait, the economy will grow, driving down the ratio of debt to GDP. And politicians hope that if they wait, incomes and profits will start to grow again, making the reform of labour and product markets less urgent. But waiting will not make things any easier, particularly as public support and patience erode.

Alas, central banks cannot do more without compounding the risks they have already created. Instead, they must re-emphasise their traditional focus – albeit expanded to include financial stability – and thereby encourage needed adjustments rather than retard them with near-zero interest rates and purchases of ever larger quantities of government securities. And they must urge authorities to speed up reforms in labour and product markets, reforms that will enhance productivity and encourage employment growth rather than provide the false comfort that it will be easier later.

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How to protect your pension from a bond market crash
The price of fixed-interest investments such as bonds and gilts affects the value of your pension fund.
Piggy bank cartoon
The price of fixed-interest investments such as bonds and gilts affects the value of your pension fund Photo: HOWARD McWILLIAM
By Emma Wall
2:23PM BST 21 Jun 2013

It won’t just be investors with money in corporate bond funds who will be affected if there is a serious shake-out in the bond market. The price of fixed-interest investments such as bonds and gilts affects the value of your pension fund, the level at which you can fix your retirement income and how many so-called “cautious” funds perform. We look at the options for insulating your finances from a burst bond bubble.
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June 20, 2013, 8:39 a.m. EDT
The Fed is wrong
By Michael A. Gayed

I like nonsense, it wakes up the brain cells.

—Dr. Seuss

Let me make this very clear — I am not an “end the Fed” kind of guy. Many have valid reasons to criticize the Fed and its policies, and many correctly defend the Fed for trying to fight an impossible battle against deflation. To me, the biggest error and criticism one can make about the Fed can be summed up in a single word: underestimation.

Bernanke, to the surprise of nearly everyone, stood his ground on the idea that tapering could begin later this year. The news sent stocks and bonds tumbling sharply. Emerging-market equities got wrecked, and there seemingly was no where to hide except shorter-duration bonds which held up considerably better.

Between the NSA spying on foreign citizens, and the evisceration of their stock markets by Bernanke, I get the sense the U.S. isn’t going to be feeling the love overseas any time soon.

But I believe concerns over an end to quantitative easing (QE) are overblown. Fear over its end will likely soon be replaced by fear of deflation, which remains, once again, precisely what the Fed has underestimated.
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June 24, 2013, 12:23 a.m. EDT
Dollar marches higher against other majors
By Michael Kitchen, MarketWatch

LOS ANGELES (MarketWatch) — The U.S. dollar extended its winning streak Monday, notching gains against all of its largest rivals as investors piled back into the greenback.
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Inflation can cure everything.

Foreclosures fall to nearly 7-year low
By Lily Leung12:28 p.m.June 18, 2013

San Diego County foreclosures have plummeted to a nearly seven-low year — in light of rising home values, the effects of government intervention and new protections for California consumers, said real estate tracker DataQuick on Tuesday.

A total of 175 trustee deeds, which signal a foreclosure, were recorded countywide in May. That’s the lowest level since September 2006, when 172 homes were foreclosed upon and the local housing market began to see troubling declines in prices and sales.

“We’ve pretty much gone back to normalcy in foreclosures,” said Alan Nevin, a housing analyst with the London Group in downtown San Diego.

The most obvious reason for the foreclosure drop is that notices of default, the first step in the foreclosure process, also have fallen drastically. A total of 642 default notices were filed in May, down 52 percent from a year ago.

That figure tends to be sporadic month-to-month, due to sudden hikes or drops in filings from major mortgage servicers, Nevin said. Still, defaults have generally been trending down. May’s total is about 28 percent lower than the one-year average of 887, DataQuick numbers show.

How did we get here?

A mix of factors — from an improving housing market to multibillion-dollar mortgage settlements — have played roles in cutting real estate distress throughout the county, said DataQuick analyst Andrew LePage.

The median price for a home sold in May rose past the $400,000 mark, the first time in five-plus years. May also marked the ninth straight month of double-digit annual gains in prices. That has been instrumental in lifting homeowners out of negative equity, especially those on the brink of defaulting on their mortgages, LePage said.

Those market dynamics give more hope to consumers, who now have “far greater incentive to hang on” to their properties, he added.

Troubled homeowners in the past year also have had more access to foreclosure alternatives through government settlements with major banks accused of foreclosure abuses.

Those deals required companies such as Bank of America, Wells Fargo and Chase to provide more homeowner aid. That help has included loan modifications, principal reductions and short sales, deals that let homeowners sell their homes for less than what they owe on their loans.

Also helping consumers are new protections, nicknamed the Homeowner Bill of Rights, which went into effect in California at the start of the year. A key feature of that set of laws prevents banks from starting the foreclosure process while a loan modification has been submitted or being reviewed by the bank, also called dual process.

San Diego’s housing comeback has come quicker than expected, Nevin said, because the county didn’t overbuild like other major metros including Phoenix and Las Vegas, where the foreclosure issue was more severe and prices have taken longer to recover.

Also, foreclosed properties in San Diego County did not remain on the market long because investors, many of them seasoned, snapped them up, Nevin said.

Discussion of a “shadow inventory,” a buzz term describing a spate of homes on the brink of default, has waned among real estate experts and in news reports. Fears of an imminent foreclosure wave, one that has been predicted for years, are over, Nevin said.

“We’re pretty much over it,” Nevin said. “Once again, it isn’t uniform across the United States, but in coastal California all the way up to Seattle, there is no hidden inventory of foreclosures.”
…

PERSONAL FINANCE
Updated June 22, 2013, 8:57 p.m. ET
Foreclosures Are Still a Concern

The housing market is recovering in many regions, but new research suggests there’s still some cause for concern: Foreclosures are on the rise again.

“The foreclosure problem was not resolved; it was simply delayed,” says Daren Blomquist, vice president at RealtyTrac. He expects this to continue until the banks catch up with the backlog of delayed foreclosures. Banks are repossessing more homes precisely because higher prices are making it easier for them to unload the properties, he says, “but the recovery has strengthened most local markets enough to quickly shake off a few more blows from these nagging foreclosures.”

In May, one in 885 homes in the U.S. had a foreclosure filing, says RealtyTrac. Here are four states with the highest foreclosure rates.

Florida: 1 in 302. Florida had the highest foreclosure rate in the U.S. in May, rising 20% from the previous month and 12% from a year earlier.

Nevada: 1 in 305. After 27 consecutive months of annual decreases, foreclosures rose 18% on the month, but were up just 1.4% on the year.

Ohio: 1 in 584. Foreclosures actually fell 27% in May from the previous month, and 15% from a year earlier. Bank repossessions, on the other hand, were up 7% from a year ago, and rose for the ninth consecutive month.

Maryland: 1 in 587. Maryland foreclosure activity increased 11% in May and was up 134% from a year ago.
—Quentin Fottrell
MarketWatch.com

Given that Ohio was not exactly a Housing Bubble Ground Zero while California was, does anyone besides me find it peculiar that California’s foreclosure crisis has ended while Ohio’s remains on the boil, especially in light of California’s still-elevated unemployment rate?

Ohio foreclosures still a major problem
Thirty-five of Ohio’s 88 counties, including Huron County, reported more foreclosures in 2012 than in 2011.
Scott Seitz
Jun 22, 2013

The number of foreclosure filings in Ohio dropped in 2012, but one research group says foreclosures remain a major problem.

Ohio had 70,469 new properties enter foreclosure in 2012, down 1.5 percent from 2011 and 17.6 percent from the number of cases brought against property owners in 2010, according to Supreme Court of Ohio statistics.

Foreclosure filings in Ohio peaked at 89,061 in 2009.

Statewide foreclosure filings increased 14 consecutive years through 2009 before dropping in 2010, according to Court News Ohio, a court system news service.

However, the foreclosure rate is still four times what it was in 1995, according to analysis by the group Policy Matters Ohio. Policy Matters is a nonprofit, nonpartisan research institute with offices in Cleveland and Columbus. The nonprofit studies public policy issues.

“The economy cannot recover with 70,000 new foreclosure filings a year,” said David Rothstein, Policy Matters project director for asset building, and author of the group’s annual foreclosure report “Housing Insecurity” released in May.

“It’s so divided by zip code and area by where things are getting better and things are staying the same,” Rothstein said.

Thirty-five of Ohio’s 88 counties reported more foreclosures in 2012 than in 2011, Court News Ohio said.

In Huron County, Clerk of Courts Susan Hazel said recently she is hopeful things will get better.

“I’m hoping we’re improving at this point,” Hazel said. “So far at the start of this year, we’re getting a little bit better, but in our area, it will be a slow change. I’m cautiously optimistic at this point.”
…

Not working in the intelligence contracting biz, I am wondering which scenario is most likely from here?

1. Uncle Sam negotiates an extradition deal with Putin.
2. Russia employs Snowden as an intelligence asset.
3. Snowden drops out of the intelligence biz and assimilates into Russian society.
4. Something else (and if so, please suggest what).

Features
Booz Allen, the World’s Most Profitable Spy Organization
By Drake Bennett and Michael Riley
June 20, 2013

In 1940, a year before the attack on Pearl Harbor, the U.S. Navy began to think about what a war with Germany would look like. The admirals worried in particular about the Kriegsmarine’s fleet of U-boats, which were preying on Allied shipping and proving impossible to find, much less sink. Stymied, Secretary of the Navy Frank Knox turned to Booz, Fry, Allen & Hamilton, a consulting firm in Chicago whose best-known clients were Goodyear Tire & Rubber (GT) and Montgomery Ward. The firm had effectively invented management consulting, deploying whiz kids from top schools as analysts and acumen-for-hire to corporate clients. Working with the Navy’s own planners, Booz consultants developed a special sensor system that could track the U-boats’ brief-burst radio communications and helped design an attack strategy around it. With its aid, the Allies by war’s end had sunk or crippled most of the German submarine fleet.
…

I am glad that Hong Kong didn’t give a flyin F about Obama and US request about the Snowden.

He’s best lie low and watch out for drones.

Aside from splashing a bucket of eggs on Booz Allen and the U.S. Congress, did Snowden actually break any laws?

Yes.

+1

Yup, I enjoy them even more than The Onion.

they had that story on the news. sounds like they milked it for years of free rent.

how many more people will be on food stamps this year thx to no work?

They need to start addressing the real problems in the economy and quit the clowning around with a printing press.

Let’s wait for the forensics and autopsy reports before we start in on the conspiracy theories, okay? It’s possible that maybe he was amped about being surveilled and excited about being onto a big story.

Maybe got a bit inebriated to calm down, was maybe driving at an accelerated rate of speed, hit a tree, ruptured his gas tank and it blew up? No reports of shrapnel so far, so maybe his engine just ended up 60 feet from the chassis because…um, it fell out of the Mercedes?

Slob, I am surprised you post such right wing anti-Obama trash, since your posts favor the nanny state.

“Experts.” makes me happy to be realizing some good long term stock gains and raise funds for growing my stack.

Pakistani militants kill 10 foreign tourists
Zarar Khan, Associated Press 6:43 a.m. EDT June 23, 2013
(Photo: Musaf Zaman Kazmi, AP)

ISLAMABAD (AP) — Islamic militants disguised as policemen killed 10 foreign climbers and a Pakistani guide in a brazen overnight raid against their campsite at the base of one of the world’s tallest mountains in northern Pakistan, officials said Sunday.

The Pakistani Taliban claimed responsibility for the attack at the base camp of Nanga Parbat, saying it was to avenge the death of their deputy leader in a U.S. drone strike last month.

The attack took place in an area that has largely been peaceful, hundreds of kilometers (miles) from the Taliban’s major sanctuaries along the Afghan border. But the militant group, which has been waging a bloody insurgency against the government for years, has shown it has the ability to strike almost anywhere in the country.

The Taliban began their attack by abducting two local guides to take them to the remote base camp in Gilgit-Baltisan, said Pakistani Interior Minister Chaudhry Nisar Ali Khan. One of the guides was killed in the shooting, and the other has been detained for questioning. The attackers disguised themselves by wearing uniforms used by the Gilgit Scounts, a paramilitary force that patrols the area, Khan said.

Around 15 gunmen attacked the camp at around 11 p.m. Saturday, said the Alpine Club of Pakistan, which spoke with a local guide, Sawal Faqir, who survived the shooting. They began by beating the mountaineers and taking away any mobile and satellite phones they could find, as well as everyone’s money, said the club in a statement.

Some climbers and guides were able to run away, but those that weren’t were shot dead, said the club. Faqir was able to hide a satellite phone and eventually used it to notify authorities of the attack.

Attaur Rehman, the home secretary in Gilgit-Baltistan, said 10 foreigners and one Pakistani were killed in the attack. The dead foreigners included three Ukrainians, two Slovakians, two Chinese, one Lithuanian, one Nepalese and one Chinese-American, according to Rehman and tour operators who were working with the climbers. Matt Boland, the acting spokesman at the U.S. Embassy in Islamabad, confirmed that an American citizen was among the dead, but could not say whether it was a dual Chinese national.

The shooting — one of the worst attacks on foreigners in Pakistan in recent years — occurred in a stunning part of the country that has seen little violence against tourists, although it has experienced attacks by radical Sunni Muslims on minority Shiites in recent years.

Pakistani Taliban spokesman Ahsanullah Ahsan claimed responsibility for the attack, saying their Jundul Hafsa faction carried out the shooting as retaliation for the death of the Taliban’s deputy leader, Waliur Rehman, in a U.S. drone attack on May 29.

“By killing foreigners, we wanted to give a message to the world to play their role in bringing an end to the drone attacks,” Ahsan told The Associated Press by telephone from an undisclosed location.
…

9:32p Shanghai Composite retreats 0.5% in opening moves
9:31p Hong Kong H shares drop 1.4% in early trading

June 24, 2013, 12:10 a.m. EDT
China stocks tumble to lead losses in Asia
By V. Phani Kumar, MarketWatch

HONG KONG (MarketWatch) — Chinese stocks tumbled on Monday, leading most Asian markets lower, as a recent spike in Shanghai interbank interest rates fueled worries about the impact from tighter policies on the world’s second-largest economy.

The Shanghai Composite skidded 3% to 2,010.77 by the midday break, while the Hang Seng Index in Hong Kong fell 1.6%, dropping for a fifth straight session to stay close to nine-month lows.

Short-term interbank interest rates in Shanghai, which hit record highs on Thursday, extended their drop from levels seen on Friday but remained above the 6% level Monday, according to Dow Jones Newswires. This fed worries that the People’s Bank of China may keep those rates at a high level.

“The worst of the liquidity crunch may now be behind us, but we believe interbank rates will stay at elevated levels until at least the second week of July,” said Standard Chartered economist Stephen Green.

“The longer this policy lasts, the more concerns about banking-sector stability will be raised. It may also cause slower credit growth in the second half,” he said.

Moody’s Investors Service Vice President Bin Hu also echoed similar concerns. Hu said the ratings agency interprets the tight liquidity conditions as a conscious decision by the Chinese central bank to curb credit growth and that they regard such moves as credit-positive for the health of the overall banking system.

“However, the method the [People’s Bank of China] chose to keep the banking system short of liquidity entails risks that could have credit-negative implications, particularly for small and midsize banks that are more dependent on the interbank market,” Hu said.
…